Country Cartels *

We analyze collusion under demand uncertainty by cartels such as OPEC that care about the utility derived from profits by citizens. When citizens are sufficiently risk averse and fixed operating costs are non-trivial, it becomes difficult for cartels to collusively restrict output both when demand is low and marginal dollars are highlyvalued, and when demand is high and potential defection profits are high: output relative to monopoly levels becomes a U-shaped function of demand. Greater risk aversion or higher fixed operating costs make collusion more difficult to support in recessions, but easier in booms. ∗We thank Odilon Camara for helpful comments. †Department of Economics, University of Illinois, David Kinley Hall, Urbana, IL 61820. E-mail: [email protected] ‡Department of Finance, Orfalea College of Business, California Polytechnic State University, San Luis Obispo, CA 93407. E-mail: [email protected]